Another top Citigroup executive is facing the possibility of hefty fines and even a lifetime ban from the securities industry.
Kevin McCaffrey, Citigroup’s former head of U.S. stock research, is under investigation by Wall Street watchdog NASD for allegedly failing to supervise analyst Jack Grubman, the former telecom dealmaker who in December agreed to pay a $15 million fine and accept a lifetime ban to settle charges over misleading research. Citigroup replaced McCaffrey as head of U.S. equity research in October. He now runs Citigroup’s Internet sales and marketing.
McCaffrey has denied any wrongdoing, according to NASD filings. If he refuses to settle, McCaffrey will face a hearing in front of an NASD panel. The NASD’s maximum penalty is a lifetime ban from the securities industry and monetary fines.
McCaffrey is also the focus of arbitration cases brought by private investors. Disciplinary proceedings may also be brought against other Citigroup executives. Citigroup, McCaffrey and the NASD declined comment.
News of the probe is the latest black eye for the world’s biggest bank as it struggles to put an end to months of scandal. Sunday, Citigroup CEO Sanford Weill withdrew his nomination to the New York Stock Exchange board after New York State Attorney Eliot Spitzer called it “an outrage.”
In December, Citigroup agreed to pay $400 million in fines to regulators as part of a tentative industrywide deal to settle claims that it misled investors with biased research written to win banking business.
In e-mail and memos cited in a lawsuit Spitzer filed in September, Grubman and his colleagues indicated they didn’t believe the ratings they assigned to companies such as Winstar Communications, which were investment-banking clients.
In an e-mail to McCaffrey, according to the lawsuit, Grubman wrote: “Most of our banking clients are going to zero and you know I wanted to downgrade them months ago but got huge pushback from banking.”
Grubman left Citigroup in August, saying in his resignation letter, “I did my work as an analyst within a widely understood framework consistent with industry practice that is now being extensively second-guessed.”